As the British tax system goes digital, HMRC’s ability to notice inconsistencies, errors or late payments will only get more efficient.
Both late payments and errors are something they take very seriously so you should be meticulous about keeping to their timeframes and filing your returns accurately. That said, late payments and errors do occur, so here is the current legislation regarding them.
Missed VAT deadlines
If your VAT return is not submitted by the deadline, in the full and complete amount, you will have a default recorded by your Unique Taxpayer Reference (UTR). HMRC take any late payment of VAT particularly seriously since, unlike corporation tax, VAT is their money in the first place which the taxpayer is merely collecting on their behalf.
Following a default, you will enter a 12 month ‘surcharge period’ which can be extended for another 12 months if you default again during this time. The surcharge fee will be calculated as a percentage of the outstanding VAT from the date it was due. Please refer to the HMRC page here for the latest surcharge figures.
If you or your accountant discovers a VAT error in a return already submitted, it is your duty to report them to HMRC as soon as possible. This applies particularly to inaccuracies relating to:
- an error above the reporting threshold
- any error which may have been made deliberately
- an error pertinent to an accounting period that ended more than four years ago
To report this error Fill in form VAT652 and send it to the VAT Error Correction Team.
Missed PAYE deadlines
HMRC charge strict late payment penalties on any PAYE amount that is not paid on time, and accurately. The first failure to pay does not countenance as a default but, following this, the percentage penalty amount increases exponentially depending on the number of times defaulted. You can see the current HMRC late monthly and quarterly PAYE payments structure here.
How you attend to PAYE errors depends upon the nature of the error. If you paid HMRC too little because of a mistake in your Full Payment Submission (FPS) or Employer Payment Summary (EPS), you might simply correct it in your next report. If you have underpaid due to entering the wrong amount, then HMRC will expect you to pay the balance as soon as possible to avoid interest or a penalty.
Late payment of corporation tax
Corporation tax arrears makes you liable for late payment interest that is charged from the day after the tax should have been paid until the date it is settled. You won’t pay interest on the interest itself, and these interest charges are automatic. You’re legally entitled to deduct any late payment interest you pay to HMRC, for tax purposes.
Corporation tax errors
If you discover that you’ve made an error regarding your corporation tax, it’s imperative you contact HMRC immediately. Doing so will minimise the chances of incurring any penalty, as well as demonstrating your honesty and accountability.
The phrase HMRC use regarding their expectations of taxpayers to fulfil their returns accurately is ‘reasonable care’. If you have made a human mistake, having taken this reasonable care, then they may not charge a penalty at all. Where they find reasonable care has not been taken (such as if you don’t tell HMRC that your company is liable for corporation tax), then you will incur a penalty based upon a percentage of the amount of tax owed. The percentage applied will depend on whether HMRC considers the error to be:
- Deliberate (i.e. intentionally concealing an error)
- Deliberate and concealed – (i.e. if you sent them false information and then try to hide the fact)
You can read HMRC’s current penalty figures on their official page here.